Professional Market Makers Dominate DeFi Markets Using Proprietary Automated Market Makers

Decentralized finance (DeFi) has undergone a significant change in recent years. The original idea behind DeFi was to create open markets by replacing professional dealers with public software, allowing anyone to contribute liquidity and trade against it.

However, a new study from DWF Ventures reveals that professional market makers have started using proprietary automated market makers (propAMMs) to dominate certain DeFi markets. PropAMMs are essentially electronic currency dealers installed inside a blockchain, where a single firm supplies its own inventory and uses private software to determine prices.

The study found that propAMMs account for 15-27% of daily on-chain DEX volume, with some smaller market segments having above 90% of trades routed through them. This means that users who swap $SOL for $USDC may not be trading directly with other users or public pools, but rather with professional trading firms using their own money and pricing software.

One such firm, Jump Crypto, examined over 20 million propAMM fills from March and found that the median fill executed 0.72 basis points from its benchmark centralized-exchange midpoint, while 91.9% of fills were cheaper than Jump's estimate for the lowest institutional centralized-exchange fee tier.